South Korea's Moon shakes up economy team, vows to keep policies

SEOUL (Reuters) - South Korean President Moon Jae-in has replaced his two top economic policymakers with current members of the government, his office announced on Friday, saying the changes were made to strengthen efforts to achieve a more equitable economy.

South Korean President Moon Jae-in delivers his speech on the government's 2019 budget proposal during a plenary session at the National Assembly in Seoul, South Korea, November 1, 2018. REUTERS/Kim Hong-Ji/Pool

Presidential social policy aide Kim Soo-hyun will succeed Jang and veteran bureaucrat Hong Nam-ki, currently head of the government policy co-ordination office, will be the new finance minister, the presidential office said.

The outgoing finance minister, who had served since June last year, had repeatedly clashed with Jang by calling for some adjustment of the president’s ‘income-led growth’ strategy.

Critics say Moon’s signature policies, notably big minimum wage increases and a shorter work week, had backfired, with lower income earners - the intended beneficiaries - feeling the most pain as employers cut back hiring.

It was a bigger reshuffle than expected, but the appointment of their successors from within the government meant President Moon would pursue existing economic policies, which economists have said were hurting growth.

Markets gave a lukewarm reaction to what turned out to be a cosmetic and largely political event, with the country’s stocks and currency both weighed down as a hawkish U.S. central bank deterred investors from holding riskier assets.

“There’s not a single sign of any change in policy coming, and instead, this means the president wants the government to do the same thing more strongly,” said Oh Suk-tae, chief Korea economist at Societe Generale.

The incoming chief presidential policy aide has been behind harsh regulatory measures aimed at curbing housing prices, which many analysts have said were against market principles.

The incoming finance minister has served at various government departments such as the finance ministry and the presidential office. He still needs to be vetted by parliament, but its approval is not mandatory.

A survey by Gallup Korea published on Friday showed approval ratings for Moon had fallen for four weeks running to 54 percent, way down from a high of 84 percent right after he took office in May last year following his predecessor’s impeachment and removal.

South Korea’s minimum wages are set to be raised by nearly 30 percent over two years and the work week has been cut by almost a quarter for big companies, but initial outcomes have been a plunge in employment rates and lower incomes.

The economy saw growth in the July-September quarter holding steady from the previous quarter at 0.6 percent, but missing the market expectations as construction spending plunged by the most in two decades.

Private consumption held up on increased welfare support but a sharp cut in infrastructure spending and strong controls on property transactions clouded the outlook at a time when the global demand for South Korea’s exports is cooling.